Falling stock market makes India more equal. Does it matter?

Critics say rising inequalities in India are sparking mass resentment and Maoist insurrection. Really? Tribals in the Maoist belt certainly hate those who are growing rich by exploiting them. But do tribals know or care about Mukesh Ambani, the richest Indian?

Tribals are surely outraged by differences in power and income between them and the corrupt officials and forest contractors who have long run outrageously exploitative fiefdoms in the Maoist belt. But i doubt they know or care about the wealth of Mumbai industrialists, or of the sharp fall in that wealth in the last four years.

Not all readers know that a falling stock market has wiped out half to three-quarters of the wealth of India’s biggest businessmen. Critics are astounded to hear this, but it’s true.

Mukesh Ambani’s star company, Reliance Industries Ltd, has fallen in price (adjusted for splits, bonuses etc) from a peak of Rs 1,608 in 2007-08 to just Rs 817 today, wiping out half his wealth. His other major company, Reliance Industrial Infrastructure Ltd, has lost 85% of its peak value (from Rs 3,049 to Rs 441).

So, the gap between Mukesh and Maoist tribals has fallen dramatically. Are they cheering? Not at all. Mukesh’s wealth is irrelevant to them, whether rising or falling.

Anil Ambani has suffered much more than Mukesh. The adjusted price of Reliance Capital is down from a peak of Rs 2,859 to Rs 342; of Reliance Communications from Rs 820 to Rs 96: of Reliance Infrastructure from Rs 2,584 to Rs 528; and of Reliance Mediaworks from Rs 1,815 to Rs 83. The gap between Anil and poor tribals has crashed. This may make Mukesh smile, but is irrelevant for tribals.

Ratan Tata has no significant personal holdings in the Tata group. The opposite is true of Kumar Birla, the wealthiest of the Birlas. He is less wealthy than he used to be. The share price of his flagship company Hindalco is down from a peak of Rs 199 to Rs 144; of Grasim from 3,870 to Rs 2,579; of Idea Cellular from Rs 157 to Rs 96; and of Aditya Birla Nuovo from Rs 2,435 to Rs 833.

Some critics argue that the greatest public resentment is not against the Tatas and Birlas, who have created world-class enterprises, but against dubious businessmen in real estate and government infrastructure contracts, who have become rich mainly through political connections and favours.

However, the stock market has punished several companies severely for poor corporate governance. DLF is down from a peak of Rs 1,205 to Rs 220, and Unitech from Rs 538 to Rs 26 (down 95%!). Among the infrastructure companies, GMR is down from Rs 131 to Rs 29; GVK from Rs 85 to Rs 16; Lanco Industries from Rs 113 to Rs 29; and Lanco Infratech from Rs 84 to Rs 15.

Critics say crony capitalists break many laws with impunity because of their political contacts. Well, politicians may not have penalized them but the stock market has. Their wealth has been decimated because investors see them as companies with dubious practices and balance sheets, and have dumped their shares wholesale.

The government may not have reduced inequalities, but the stock market has! Why do tribals ignore this? Because, says one critic, the rich-poor gap is so huge that even a halving of wealth is irrelevant to tribals. Maybe so, but then surely a doubling of wealth is also irrelevant. Yet if this happens, we hear agonized cries about rising inequality.

Greater equality through leveling up is excellent. But equality through leveling down-exemplified by 97.75% income tax and 3% wealth tax in Indira Gandhi’s Garibi Hatao phase–helps nobody. Poverty did not fall at all in that era.

The standard measure of inequality is the gini-coefficient. This is lowest (just 0.17) in rural Bihar and Assam. Are these areas paragons of fairness and justice? No, they are sloughs of despond, where equality denotes lack of opportunity, not fairness. That’s why people migrate from these egalitarian areas to cities, which are very unequal but provide opportunity.

People have always prized opportunity over equality. Thousands risked death scaling the Berlin Wall, to get from egalitarian East Berlin to inegalitarian West Berlin. People swam shark-infested waters to get from Mao’s egalitarian China to inegalitarian Hong Kong. Nobody swam in the opposite direction.

Tribals have gone Maoist because they have long been neglected and exploited, not because the Ambanis are too rich. Tribals desperately need more opportunity, not lower gini coefficients.

DISCLAIMER : Views expressed above are the author's own.

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Swaminathan S Anklesaria Aiyar is consulting editor of The Economic Times. He has frequently been a consultant to the World Bank and Asian Development Bank. A popular columnist and TV commentator, Swami has been called "India's leading economic journalist" by Stephen Cohen of the Brookings Institution. "Swaminomics" has been appearing as a weekly column in The Times of India since 1990. In 2008, The Times of India brought out the book "The Benevolent Zookeepers - The Best Of Swaminomics".

Swaminathan S Anklesaria Aiyar is consulting editor of The Economic Times. He has frequently been a consultant to the World Bank and Asian Development Bank.. . .